The Government scheme to make getting a mortgage easier is causing confusion
among those it seeks to help, like Oliver Scarfe and Kelly Elliott.

The early launch of the second phase of Help to Buy will open up more options for house buyers keen to beat rising property prices, but many are uncertain about the scheme and anxious that it does not offer the best route to home ownership.

The Daily Telegraph has been inundated with readers’ queries since the Government announced that it would begin phase two on Monday, three months ahead of schedule. Many are confused about whether phase one, the equity loan, or phase two, the mortgage guarantee, will offer better value. Some fear the scheme’s funding will run out. Others are anguished by the prospect of prices rising further, or worry that rates will go up sooner than expected.

In general, buyers are currently returning to the property market, spurred on by price rises across Britain.

The average UK house price is climbing by 5pc a year, with steeper increases in London and the South East. Most analysts believe this growth is likely to continue.

New research by Santander shows 10pc of Britons – or 5.1 million people – intend to buy a new home in the next 12 months. One third of those said they were likely to use Help to Buy. If all these people followed through on their intentions, housing transactions would soar to five times their current levels.

Oliver Scarfe, 30, and his partner, Kelly Elliott, 26, live in south-west London and are looking to buy a home in Godalming, Surrey, using Help to Buy.

They are unsure whether to use the equity loan or the mortgage guarantee.

The couple, who work in recruitment, have saved a deposit of £35,000 and so can spend up to about £325,000.

They would prefer to buy a new-build home, so were drawn to the first phase of Help to Buy (see panel, right, for more details on both schemes). However, they have found the choice of new-build homes limited and prices have seemed high.

The pair, who are moving to Godalming to help care for Mr Scarfe’s mother, eventually found a two-bedroom new-build home with an asking price of £337,000.

They told the developer they wanted to make a lower offer on the property, and that they planned to purchase it through Help to Buy.

Mr Scarfe said the house builder informed them that if they wanted to use Help to Buy, mortgage lenders would not allow any negotiation on the asking price or any incentives to be offered such as fixtures and fittings. This information was wrong. The scheme does not preclude buyers from negotiating a better price, as long as the lender knows the final price agreed.

The fact they were misinformed highlighted the complexity of the arrangements and has deterred Mr Scarfe. He said: “We decided not to pay the full asking price.” He suspects the existence of the Help to Buy scheme could encourage developers to overprice properties. “Even with the scheme helping us with a bigger deposit and lower rates, it still seemed unreasonable to be forced into paying over the odds.”

The couple now face the dilemma of trying to find a more affordable new home to buy with the equity loan, or an older property to buy under the mortgage guarantee scheme.

It is difficult for borrowers to judge what value the mortgage guarantee scheme will offer, because participating lenders have not announced what their rates will be.

Mr Scarfe said: “We find ourselves in two minds about which scheme may help us, if indeed either would. Do we risk waiting for more new-build developments to be built while phase one exists, or try to get ahead of the inevitable rise in house prices and utilise phase two on a second-hand home as soon as possible?

“Phase two is likely to leave us with monthly mortgage repayments which are too expensive because we are looking in such a costly region.

“Our preference is to use phase one on a cheaper new-build – it will leave us with lower monthly payments, at least to begin with, as 20pc of the value of the house is not being borrowed.”

Help to Buy critics warn that the second phase of the scheme could inflate prices dangerously, causing a bubble.

Andrew Montlake, a director of mortgage broking firm Coreco, said the major problem with Help to Buy was that it was increasing the demand for housing but not the supply, which was driving house prices on.

He said: “Basic economics says prices are driven up when supply does not meet demand. For people in London and the South East in particular, Help to Buy could push housing out of reach for the very people the scheme is trying to help.”

Do you need Help to Buy?

The Daily Telegraph explains how the two schemes work.

The first phase, which started in April, is an equity loan offering. It allows people taking their first step on to the property ladder to borrow up to 20pc of the value of a new-build home from the Government, interest-free for the first five years.

Borrowers need a minimum 5pc deposit and must take out a mortgage to cover the remaining 75pc of the cost of the property, which can be worth up to £600,000. The Government has set aside £3.5bn to help up to 74,000 home buyers through the scheme, which will run until the end of March 2016, or when the funding runs out.

Seven lenders signed up – Barclays, NatWest, Santander, Halifax and the Nationwide, Newbury and Teachers building societies.

Brokers said Nationwide had been offering Help to Buy mortgages at the same rate as its 75pc loan to value mortgage; others were charging slightly higher rates than their own comparable products.

The second phase, the mortgage guarantee, will start on Monday and will allow first-time buyers and existing owners with a minimum 5pc deposit to buy property worth up to £600,000, new or second hand. The Government will guarantee up to 15pc of the loan at a cost to the lender, allowing the borrower to access cheaper mortgage deals. The Government has set aside £12bn of guarantees for up to £130bn of mortgage lending, and the scheme is scheduled to remain open for three years until January 2017.

It is not yet known how many lenders will take part or what rates they will offer. So far, only the government-backed banks, Royal Bank of Scotland and Lloyds Banking Group, plus Aldermore, have signed up. Aldermore is a small lender that accounted for 0.3pc of the mortgage market in 2012.

Borrowers will be able to register their interest with RBS and Lloyds from Monday, but the lenders have not yet launched their Help to Buy products and cannot say when they will do so. Aldermore has said it will not launch products until January at the earliest.

Experts say the rates are likely to sit between 4.5pc and 5pc for a two-year fix at 80pc loan to value. The best 80pc deal currently available is a 2.39pc two-year fix from West Bromwich Building Society, says Moneyfacts.co.uk.

Lenders that sign up to the scheme this year will not be able to access the government guarantees until January.

Other banks and building societies are understood to be wary about participating in the scheme until more details are released about the costs and benefits.

Ray Boulger, of mortgage broker John Charcol, said it was unlikely that many lenders would sign up to the scheme over the next few months. He said: “I don’t believe any of the other lenders are even close to deciding whether to participate, and if so on what basis.”